This post is the latest in an ongoing series on The Power of Measurement. Previous topics have covered ways to make your website as successful as possible through tools such as Analytics and Website Optimizer. – Ed.

If you're an old-school AdWords advertiser, you may remember that you originally set bids based on ad impressions (cost-per-impression, or CPM). Later, AdWords transitioned to a new model where bids were set based on ad clicks (cost-per-click, or CPC). Now, as technology has become even more advanced, we’re seeing the next phase of search engine advertising.

What if we told you that you could bid for ads simply based on conversions? (A conversion is a goal set by an advertiser, such as a website visitor purchasing a product or filling out a form.) With Conversion Optimizer, Google does all the heavy lifting and complicated analysis, letting you bid simply based on how much a conversion is worth to your business (cost-per-acquisition, or CPA). By using Conversion Optimizer, advertisers are not only seeing an increase in profits but have more time to devote to the rest of their business.

We’re excited to announce that this AdWords transformation is well underway: advertisers are already using the Conversion Optimizer to manage approximately $1 billion in spend annually.* This new shift benefits two areas Google cares deeply about: showing our users the most relevant ads and helping our advertisers increase their profits.

So how does it work? Each and every time someone types in a search query, AdWords runs a new keyword auction. Advertisers who are still bidding on a cost-per-click basis will be using the same bid in many different auctions, so sometimes their bid may be too high or too low. However, for advertisers using Conversion Optimizer, we'll automatically adjust the bid for each of these auctions so that it can hit the sweet spot more often, helping the advertiser to make more money.

For example, suppose you're advertising an online shoe store and you purchase ads using the keyword "shoes." Because your clicks come from many different types of people who have different intentions, Conversion Optimizer takes many factors into account to optimize your ad performance. If you don't ship internationally, Conversion Optimizer will learn that clicks from international users don't convert and will eliminate traffic from outside the United States. It might also learn that when customers include the word "cheap" in their query, they are particularly likely to convert because your prices are very competitive. Essentially, Google does the detective work — you tell us how much a conversion is worth and our algorithms make it happen.

As more advertisers transition to Conversion Optimizer, we look forward to showing more relevant ads and, in doing so, helping our advertisers achieve better results. Learn more about Conversion Optimizer and get started using it with your AdWords campaigns.

* Annualized figures based on Q2 sales